Is yours a family business? According to federal government figures, around 92 percent of all businesses in America are family owned and controlled. Family-owned businesses provide jobs for roughly 57 percent of the workforce and accounted for more than 68 percent of all new jobs in 2008. If you are part of such a business, your importance to the nation’s’ economy is staggering.
Many family businesses, however, operate as though there were no tomorrow. Owners often think of the family—and perhaps of themselves—as virtually immortal. Why plan for future ownership, when it’s all in the family anyway? Perhaps even more than other companies, family-owned businesses need succession plans. Family members must jointly develop a succession strategy. Failure to do so can result in the loss of everything the company is about.
Your succession strategy should contain the following considerations:
Shared vision. First, your chosen successor should thoroughly understand the vision of the enterprise. That includes a knowledge of the firm’s history and initial purpose. If that purpose has changed over the years, anyone who will take it over must understand such changes and the ways they happened. Most of all, the successor must have some genuine buy-in as to what the business is all about.
Personal qualities. Often, the family founder has succeeded because of personal qualities or talents that are unique to him or her. Whether that is the case or not, some inventory must be taken of the personal qualities of whoever is the successor–family member or not. Some qualities are mandatory regardless of the nature of the firm. These would include basic honesty, stability and maturity, enthusiasm, loyalty, and organizational abilities.
Your basic steps in succession planning are:
1. Form a succession group. Put together a team that is dedicated to learning the body of knowledge requisite to operating and growing the company. In one Central Oregon company, a succession team was allowed to be involved in high-level decision-making long before the entrepreneur stepped down. When he finally retired, the group already had accumulated nearly eight years of experience in making high-level decisions. The succession was so smooth that many employees didn’t even realize until several months later that the family patriarch had left the company.
2. Choose a specific person. In the same company, the CEO had chosen one of his nephews to take over. The nephew continued working closely with the succession team and transitioned almost seamlessly. Does this person have to be a family member? Only if keeping the business in the family is important to you and your other family members. Failure to choose anyone at all is often based on fear of how the rest of the family would react when a definite choice is made. Try attacking that problem by getting as many family members as possible involved in the decision.
3. Get an agreement to a plan. Again, company- and family-wide buy-in is very important. Your succession plan needs to have times and steps built in so the succession can take place smoothly. It should also contain contingency procedures that will take care of unforeseen schedule changes–such as illness or death.
4. Get help if you need it. Of course, we sometimes see cases where a change in direction for the company is called for. Also, perhaps there is no one in the family who has the necessary skills to make necessary changes. When this is an issue, one alternative is to hire a consulting firm to help with both your succession plan and the direction change.
Family-owned businesses vary as much as families themselves. All have unique issues that must be dealt with if the company is to continue through the decades. These tips, though, should help you to ask some of the right questions. Most importantly—don’t procrastinate on this important issue.
Lowell Lamberton is Professor of Business at Central Oregon Community College. You can contact him at firstname.lastname@example.org or by phone at 541-383-7714.